Foreign Trade and Equilibrium Indeterminacy

Luís Aguiar-Conraria () and Yi Wen ()

No 5/2004, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: We show that dependence of production on foreign inputs (or non-producible natural resources) can significantly increase the likelihood of indeterminacy. Payment of imported foreign factors of production may act as a semi-fixed cost, amplifying production externalities and returns to scale, making selffulfilling expectations driven busyness cycles easier to arise. This is demonstrated using a standard neoclassical growth model. Calibration exercise shows that the required increasing returns to scale can be reduced by as much as 64% based on estimated share of foreign inputs in production for OECD countries.

Keywords: Indeterminacy; Factor Imports; Natural Resources; Capacity Utilization; Externality; Returns to Scale; Open Economy; Sunspots; Self- Fulfilling Expectations. (search for similar items in EconPapers)
JEL-codes: E13 E20 E30 (search for similar items in EconPapers)
Date: 2004
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Working Paper: Foreign Trade and Equilibrium Indeterminacy (2004)
Working Paper: Foreign trade and equilibrium indeterminacy (2005)
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